Great Stagnation or Return to Normalcy?


Reason contributor Tyler Cowen argues in a new e-book The Great Stagnation: How America Ate all the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Get Well, that having run out of the historical advantages–"low hanging fruit" as per his subtitle–of free land, immigrant labor, and technological advantages, the glory days of amazing economic growth are likely over.

Reason Contributing Editor Brink Lindsey sees us not so much entering an unprecedented era of lousy growth, but returning to a sustainable historical trendline of growth that a postwar boom departed from.

A lot of the force of [Cowen's] argument comes from contrasting the United States' glittering economic performance in the decades following World War II with the decidedly less impressive record in recent decades. But if you zoom out and look at the larger historical record, Tyler's Great Stagnation more or less disappears. And if you zoom in and examine recent trends in detail, the numbers likewise belie the claim that we have hit some "technological plateau."

Tyler correctly points out that median family income rose smartly after World War II only to fall off sharply in the '70s. GDP per capita figures reveal the same trend, albeit a little less dramatically (because of the rise in income inequality). Between 1950 and 1973, the average annual growth rate of real GDP per capita was 2.5%; for the period between 1973 and 2007, the corresponding figure was only 1.9%

But look what happens when you put these figures in larger historical context (note: I'm using calculations by Angus Maddison for earlier periods and Census figures for post-WWII periods):

1820—1870            1.3%

1870—1913            1.8%

1913—1950            1.6%

1950—1973            2.5%

1973 2007              1.9%

From this broader perspective, what Tyler calls the Great Stagnation looks like a return to normalcy after the "Great Boom" of the post-WWII decades. Indeed, recent growth rates are better than those of all other earlier periods. So yes, growth has cooled down since the postwar "Golden Age," and that fact poses real economic and political challenges. But the Golden Age was the outlier, not our present era; it just doesn't make sense to talk about the present period as stagnant after centuries of easy growth.

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  1. Is the growth rate of those pre WW2 periods comparable to post war growth rates in regards to monetary inflation?

  2. The U.S. had a comptetive advatage right after World War 2 : A whole lot of the industrial base of the rest of the world had been blown to pieces.

    And a lot of other countries had a significant amount of their human capital wiped out as well.

    It took some time for everybody else to recoup and recover from that but once that did, our advantage was over and it’s not coming back.

    1. Good points, Gilbert, but all that it would take to get our advantage back would be the destruction of a big chunk of the world’s industrial base and human capital.

      Not that I am advocating any such thing, of course.

      1. It worked before!

    2. If by “advantage” you mean the US was better off than the other countries were, you are correct.

      If by “advantage” you mean the US was better off than it would have been had the other countries not had their capital destroyed, you are not.

      1. Maybe, maybe not. The broken window fallacy doesn’t suggest that no one benefits, just that the aggregate benefit is negative.

        1. Agreed. Glass makers, window repairers, cops, etc all benefit from a broken window, just as we benefited from the destruction of our competitors. Our gain did not exceed their loss, however.

          1. But if it did, you can be sure Chad would be calling to crush our enemies, see them driven before us, and hear the lamentation of their women!

          2. Chad, if you don’t stop talking with your make believe friends, it’s you and your hand tonight.

    3. I’ll run a litle further with that: The tech boom of the 90’s was the final frontier of things that the US could do that other countries couldn’t.

      This last boom (housing) was completely internal, and was thus bound to fail terribly.

      All of that said, RC Dean DOES have a point…

      1. I don’t know where you get your info from but,

        The tech boom of the 90’s was the final frontier of things that the US could do that other countries couldn’t.


        This last boom (housing) was completely internal…

        and wrong again.

        There are lots of things that can be done overseas now, easier than in the past. But there is still a capacity in the US for things high tech, that doesn’t exist in places like China just for example.

        And the housing boom-bust happened all around the world. Check out Europe, like Spain just to take one example.

  3. If the rate of growth was great but the growth will now abate how can we afford to wait ?

    1. If the growth don’t fit, y’all must quit!

  4. We’re constantly tinkering with our official macro-economic statistics now. Unless you correct for changes in methodology, numbers like unemployment and GDP aren’t even comparable across the last few decades, much less centuries.

    Color me skeptical that we have any good ability to estimate “GDP” for the pre-WWII era, much less come up with a measure that is constant across centuries and corrects for such major changes as the abandonment of the gold standard and the constant grinding fiat money inflation.

    1. That’s true. All economic metrics are notional especially those who report to describe eras before the idea of economic metrics even existed.

      Hell, we don’t even know if the metrics we use today correspond to anything important or not.

    2. shorter R.C. Dean:

      We’re fucked.

      (I happen to agree)

  5. 1913 – 1950 1.6%
    1950 – 1973 2.5%

    Lets just say that any period that follows a period that contained two World Wars and a Great Depression will look pretty good in comparison.

    There were certainly low hanging fruit in the post-2-war-and-1-depression years. All the consumables that were destroyed or unsatisfied during those years could now be satisfied.

    And since economic growth is nothing but matching production to consumption, the better you know what people want to consume, the more efficiently you can produce it and the faster economic growth can be.

    Not much of a surprise that once we’d caught up, we’d caught up. And certainly not a harbinger of stagnation to come.

    1. I seriously doubt that the 1960s economy was still fulfilling unfulfilled wants and needs from the 1930s.

      1. Perhaps.

        But all the people in all those countries who had absolutely nothing in 1945 did indeed have easy to discern wants and needs well into the 1960s.

        1. In particular, note that you are not catching them up to the 1945 stuff that got destroyed. You are catching them up to the latest 1960s stuff.

          To the extent 1960s stuff is more expensive, they approach that only asymptotically.

        2. And this is the part of the show where MikeP completely contradicts his earlier assertion that we would have been better off if those countries hadn’t been destroyed.

          1. Graphs. We need graphs. The rest of us aren’t mathematics majors.

            I’ll asymptotically be unimpressed till those graphs arrive.

          2. The claim I will make is that, if there were no World War II, the US would be richer in 1973 than the US was with World War II.

            If Europe simply did not exist, the US likely would not have had that 2.5% post-1950. If Europe did not destroy itself in World War II, the US may not have had the 2.5% post-1950, but it would have been higher than 1.6% pre-1950.

            Further, if Europe did not have the institutional and cultural means to reindustrialize itself after 1945 — e.g., it was like Africa — then US growth post-1950 would also have been under 2.5%.

            1. What are you, master of alternative timelines or something? You have no more idea than the rest of us what would have happened if history didn’t play out as it did.

              1. No, I don’t. I was simply explaining how two statements you thought were contradictory weren’t.

                Post-World War II economic growth shows catch up for low economic growth before and during World War II. If there had been no Great Depression or World War II, there would have been no catch up to be had, and the production efforts that ended up going to previously undemanded goods or destroyed goods could have gone to better goods or to new goods.

                Would that alternate history have shown as high a growth rate from 1950 to 1973? Possibly, but I doubt it. There would have been more creative destruction as there were more wrong guesses about what to make for whom. And while that is the long-run path to greater wealth, GDP numbers year over year are not as good as the actual history where consumer demands were more obvious, because capital requires more frequent reallocation.

          3. Missing the point Tulpa?

      2. Yeah?

        Ever try to get acid in the 1930s?

  6. That 1950-1973 period coincides nicely with the heyday of communism.

    It’s one thing when possible competitors are too busy rebuilding after being bombed back into poverty. It’s another when the possible competitors simply don’t want to compete.

  7. Any economic series that begins or ends with 1973 is immediately suspect. The period from 1973-1983 was the only time in American history, including the Great Depression, when our real standard of living actually decreased. The combination of monetary inflation with an artificial restriction in petroleum availability destroyed a lot of real wealth and production.

    Averaging GNP from 1973-1983 with 1984-2007 makes the average nonsensical.

    I do agree that the post-WWII was a boom that we will never, and shouldn’t wish to, see again. In retrospect, it was that boom, caused by a lack of competition, that made the Northeast industrial region the train wreck it is today. Everyone got used to having big corporations with no competition to pay for above market wage union demands and high taxes. Even today, 30 years+ after the gravy train ended, the entire region can think of no way of prospering except to try and recreate that golden era through tariffs and other government interventions.

  8. I was wondering when Reason would cover this. The econblogosphere has been buzzing with this since last weekend.

    I especially liked Arnold Kling’s review. I would like a full review from a Reason contributer.

  9. Indeed, recent growth rates are better than those of all other earlier periods.

    Let’s slice this “periods” pie a little differently, because I’m pretty sure the industrial revolution had some pretty robust growth.

  10. Also, when introducing Tyler Cowen, you should probably mention he is the co-blogger at http://www.marginalrevolution.com, and an economics professor at GMU before you mention that he wrote an article for Reason in 1998.

  11. Also, keep in mind you’re using GDP per capita, and all the periods before 1973 were accompanied by massive population growth.

  12. Que Andrew Sullivan to freak out over the possibility that Sarah Palin will want to recover our 1050s era growth by bombing the industrial capacity of our competitors flat………..

    1. 1050 was a very expansive year for the Native Americans.

  13. Question:

    If we’re out of free/cheap land and we’re out of free/cheap fuel, what is going to grow?*

    *discounting out new technologies, which is the wild card that seems to propel us forward.

    1. Answer: Population.

      Follow-up-Answer: yes, that is most likely why fertility rates in developed countries have dropped.

      1. Children were a profit center in agrarian societies with plenty of land. They’re a cost center in industrialized societies with scarcer real estate.

        1. …until they become adults.

          1. Appearently YOUR adult children aren’t unemployeed and living with you…

            1. We’re out of cheetos!

  14. I’d be very hesitant to write off our ability to go through another growth spurt due to the development of new technologies. We’re still preeminent or close to it in a large number of scientific and technological areas.

    Of course, if this giant leech sucking our blood dry gets any bigger, that may not happen.

    1. Dude, a major technologcal revolution is not necessary. We still live in a country where people leave lights on in unoccupied rooms. There’s more than enough easy-cuts to make before we have to actually make sacrifices to our standard of living.

      1. (it’s not like budget cutting…wait, maybe it is…)

      2. Like checking your tire pressure.

  15. Hey Reason, go fuck yourself! Anyways, I am never shocked to observe such limited imagination when it comes to predictions such as these. Who in the fuck knows what will happen in the decades to come? China could implode, a world war or several large regional wars could occur, a cure to cancer could be found, or nanobots/nano-assemblers could go mainstream – ALL of which would change the game, for better or worse. Hell, if America is the epicenter of the nano-revolution (or the Singularity, as Ray Kurzweil would say) economic growth could dwarf the post WWII boom. Using past events as the sole predictor of what is to come is feckless.

    1. Just because I might win the lottery and marry Scarlett Johansson next year, doesn’t mean I should ignore my declining financial and romantic performance and assume everything’s going to be OK.

      1. Thanksafuckinlot, Admiral Tulpa H. Pessimism. christ….

        1. Also, I can’t believe Obama single-handedly killed hope and optimism this comprehensively.

          1. It’s what he does.

            1. It’s what he does.

              Tulpa or Obama?

              1. More the latter, I think.

          2. There was already plenty of reason for pessimism in 2007, so it’s not all his fault.

            1. Tulpa’s or Obama’s?

      2. That’s not really a fair comparison. The time periods you site saw massive technology shifts. It also saw, on the downside, massive impairments of efficiency through regulation and intervention. To assume either of those variables away and say the future looks dim is like saying you’re going to have a really tough time getting to work because you’ve assumed away the gas.

  16. Reason Contributing Editor Brink Lindsey sees us not so much entering an unprecedented era of lousy growth, but returning to a sustainable historical trendline of growth that a postwar boom departed from.

    Which idea sells more copies?

    Scaremongering: You’re doing it wrong Reason.

  17. Looks like the stagnation started during the time the U.S. went from a manufacturing economy to a servility economy Well, duh. Servility jobs, like gathering shopping carts in the parking lots of Walmarts, don’t generate wealth.

    1. Anecdotes about McDonald’s and Walmarts aside, the average new service job has a higher wage than the manufacturing jobs being lost.

      Furthermore, manufacturing output in the US has consistently increased, except temporarily in the last couple years, during the entirety of this “stagnation”. It is manufacturing jobs that have declined. And the principal reason those have declined — by an order of magnitude over other reasons — is automation.

      If in the future giant factories with no one inside them churned out all the manufactured goods demanded by the world so that there were no more manufacturing jobs, would you say that no wealth was being generated?

      1. “Anecdotes about McDonald’s and Walmarts aside, the average new service job has a higher wage than the manufacturing jobs being lost.”

        Citation, please.

        This seems in completely contradiction to this article yesterday at CNN


        The middle-wage jobs are disappearing, being replaced by a very few higher wage jobs and a large number of McJobs.

        1. CNN’s coverage of job gains in a jobless recovery is hardly evidence of long-term trends.


          Although Congress seems to be in denial, America is a middle-class service economy. More than 80 percent of Americans earn their living in the service sector, including a broad swath of the middle class gainfully employed in education, health care, finance, and business and professional occupations.

          It is one of the big lies of the trade debate that manufacturing jobs are being replaced by low-paying service jobs. Since the early 1990s, two-thirds of the net new jobs created have been in service sectors where the average pay is higher than in manufacturing. Members of Congress who belittle the service sector are ignoring the interests of a large majority of their constituents.

          1. Sure, wealth is being created. But who for?

            Certainly not for the elderly lady who helped build the country you guys are running into the ground. While you sit here and argue over GDP “tinkering”, she’s deciding whether to splurge on Fancy Feast for dinner tonight or stick with Meow Mix.

  18. “Indeed, recent growth rates are better than those of all other earlier periods.”

    Does Reason go by the official stats these days? The US government is juicing GDP growth with huge deficit spending. Reason is a huge disappointment lately. Its not even libertarian anymore…

    1. I was nearly certain this was a “drink” comment, but those ellipses at the end are throwing me.

      Parody or not?

      1. If it was sarcasm, he should have used {sarcasm brackets}.

      2. I’m drinking, just in case.

        … Hobbit

  19. I think it’s bullshit. The low hanging fruit is still there, but apparently it’s become a sin to eat it.

  20. This is news? Isn’t that the whole idea, isn’t this already a settled thing in economics? Don’t they always refer to it as a “correction”? Of course it’s a correction from overly-high growth; for years the fed and the HUD was forcing growth.

  21. From this broader perspective, what Tyler calls the Great Stagnation…

    is much ado about nothing.

    I should hope enough people refuse to buy this piece of trash “work” from Cowen, so as to discourage this kind of crap in the future.

    If they make money on it, they’ll keep doing it. Or maybe, because he’s an academic, he’ll get enough brownie points out of the system to make it worth his while anyway.

    Now you know why I distrust all academics outside science and technology. There’s not enough things that actually matter for them to do, to prevent them from making shit like this up.

    And I don’t trust science academics, because they don’t have enough real things to do, to prevent them from making up shit like Mother Earth Worship global warming scare stories.

    Come to think of it, the very last people on earth that should be trusted as objective in any real way, are academics. Except that politicians are possibly worse. Or and maybe news reporters are even worser.

    I don’t even know where to rank McDonald’s employees in all of this.

  22. We can all eat gubmint cheese. The cows won’t know that we turned poor. They’ll think everyone’s just on another round of funemployment.

  23. This is what I got from measuring worth:

    1820 to 1870 1.27%
    1870 to 1913 1.84%
    1913 to 1950 2.08%
    1950 to 1973 2.47%
    1973 to 2007 1.89%

    I wonder why measuring worth gave me such different numbers.

    Look at these other statistics from measuring worth:

    1830 to 1913 1.55%
    1913 to 1939 1.10%
    1939 to 1943 13.88%

    Interestingly, GDP growth slowed down as WW2 borrowing accelerated.

    1943 to 1946
    Real GDP per capita -2.73%!!!

    1943 to 1973 1.75%

    Using the years 1950 to 1973 makes economic growth during that period look artificially high. 1950 was a year that passed when we were emerging from a decline in GDP per capita, and 1973 was a peak before a decline.

    When you use 1943 to 1972, per capita GDP growth was only 1.65%!!!

    I’ve played with Measuring Worth for hours, and I know just how to fudge the numbers in all sorts of ways. That is why you have to pick neutral years, or you’re going to get fucked up statistics.

    1973 to 2009 1.65%

    1973 is a peak year and 2009 is a valley year, so this last statistic is probably skewed downward.

  24. “The official CPI series begins in 1913, but improvements to the official series are made here, so the CPI series here is identical to the BLS series only from 1978 onward.”

    This is from the Measuring Worth site and it probably explains the difference between their numbers and the ones presented in the article.

  25. Or we could also point out the difference in government debt between the different periods.

    Before the progressive era, government debt as a percentage of GDP was well below 20% for the bulk of the 1800’s, meanwhile government debt never fell below 30% of GDP, and it only got that low after inflation drove down the debt percentage dramatically.

    I could also point out the differences in population growth rates. Population growth before 1900 was almost double what it was after that year.

    The data that is often used to argue that recessions have been shorter and easier since the creation of the Fed is faulty and based on misinterpretations of data before 1900. For example, the often talked about “Long Depression” of the 1870’s through the 1880’s was actually a period of incredible growth. Economic historians often used to make the mistake of assuming that any period of falling prices and falling profits automatically equated to a recession, even though per capita income and the unskilled wage shot up during these same periods.

    Long story short, there is no evidence that progressivism or monetary policy has contributed to higher growth or more stability. This is especially true when you consider that many historical events are random, so comparing two radically different economic periods is more or less impossible. Trusting in the Federal Reserve is blind faith pure and simple.

    1. “meanwhile government debt never fell below 30% of GDP (AFTER THE PROGRESSIVE ERA), and it only got that low after inflation drove down the debt percentage dramatically.”

      It’s really late…

  26. “meanwhile government debt never fell below 30% of GDP (AFTER THE PROGRESSIVE ERA), and it only got that low after inflation drove down the debt percentage dramatically.”

    It’s really late…

  27. Immigration was also at an all time low during the post-war era.

    1. …except for the 1930s and 1940s, which were much lower.

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